Tax implications on surrender of Endowment and Term Policy

POSTED BY Ram Mohan ON February 28, 2012 1:31 pm COMMENTS (6)

Hi,

I am planning to stop 2 policies —

1) Endowment policy from ING which I have for more than 5 years. Now, the policy is in grace period, i.e. I missed the premium on 20th Feb. So, questions regarding this policy are:

1a) can I still surrender it at this time and get some money (around 25K)?
1b) I have shown around 15,000 this year under 80C for this policy. Will there be some tax implication?
1c) Should I pay some tax on the money I get from surrender?
1d) If there are tax implications will it be better to wait till end of financial year (march) and surrender in April 2012?

2) ULIP from Metlife bought on Oct 2007. I’m planning to surrender this too. Again same questions as above

2a) Will I need to pay tax on the money I get from surrender?
2b) I have already shown this in my 80C for this year. Will it get reversed?
2c) If that’s the case, should I wait till April 2012 or maybe even Oct 2012 (to complete 5 years) before surrendering?

Thanks in advance

Ram

6 replies on this article “Tax implications on surrender of Endowment and Term Policy”

  1. This is my first time pay a visit at here and i am in fact pleassant to read all at single place.

  2. Dear Rmohan, sorry for the delay in reply. For ING, you should surrender now. Invest the surrender amount in an Eq. MF to cover your losses from surrender as well as to gain some positive return.

    For Metlife policy, you may surrender it post Oct 2012.

    Thanks

    Ashal

    1. rmohan80@gmail.com says:

      Thanks Ashal. For tax saving purpose (I didn’t maximize 80c), I’m going to continue ING till Mar 2012 and surrender. Will surrender Metlife after Oct 2012

      Thanks for your inptus

  3. rmohan80@gmail.com says:

    Dear Ashal,

    Any further inputs based on the details I’ve given?

    Thanks,

    Ram

  4. Dear Ram, as you have claim 80C benefits on both policies, please pay the last due prem. for endowment plan & then surrender both policies in april 2012.

    Please confirm the applicable surrender charges for both policies.

    Thanks

    Ashal

    1. rmohan80@gmail.com says:

      Dear Ashal,

      For ING Endowment, I’ve been paying 1,508 per month from Dec 2005. As per policy documents the surrender value is (I think) 20% of premiums paid. When I last enquired, the surrender value as on 2nd Jan 2012 was 26,179.80

      For Metlife, I’ve been paying 25,000 per year from Oct 2007. The surrender charges during years 5 (currently running) is 60% of first year regular premium. Thereafter every year it decreases by 10% till it becomes 0

      Further follow up questions:

      1) I’ll continue ING till Mar 2012 and surrender in Apr 2012. However, my question of whether surrender in grace period is allowed remains. Does it depend on the policy wordings?

      2) For Metlife, Doesn’t it make sense to pay Oct 2012 premium and then surrender? Otherwise my 80C claims for the past 5 years (25,000 per year becomes taxable). Backtracking all these claims over the past 5 year IT submissions is surely a big pain?

      Please advise.

      Thanks,

      Ram

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